The Role of Management Style in Cost Stickiness and Shareholder Value

Document Type : Research Paper

Authors

1 Associate Professor, Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad, Iran.

2 Assistant Professor of Accounting, Faculty of management, economic & accounting, Payame Noor University (PNU), Iran.

Abstract

Objective: This research aims to investigate the effect of management style on the stickiness of general, administrative and sales costs at the company level and its impact on shareholder value. The problem is whether the choices and decisions (management style) of CEOs affect the stickiness of administrative and sales costs, and if the management style causes part of the stickiness of costs, is this part of the excess stickiness of costs a consequence of Worth participating? Therefore, in the current research, the excess stickiness of administrative and sales costs compared to the specific stickiness of the company is considered the stickiness caused by the CEO's choices and decisions. Then, its relationship with the company's value is investigated. The direct influence of CEOs on cost adjustment decisions is not easily discernible. Because resource allocation decisions are made at different levels of the company (for example, business unit level). However, the empirical background shows that the hypothesis "the role of manager's style in cost adjustment decisions" is logically provable. Based on this, it is assumed that part of the stickiness of administrative and sales costs at the company level comes from the difference in the specific style of the CEO. In this regard, the first hypothesis is formulated as follows: the fixed effects of the CEO have a significant relationship with the excess stickiness of administrative and sales costs at the company level. Managers seek to increase their personal interests without paying attention to the interests of the shareholders, and the resulting agency costs are directly imposed on the company and shareholders. Therefore, we expect that regardless of the direction of the deviation, the excess stickiness related to the CEO has a negative effect on shareholder value. Of course, adjustment of resources and costs can be caused by supervision and supervision duties. However, it is expected that, on average, the expected effects of the agency model will prevail. Therefore, the second hypothesis of the current research is formulated as follows: the level of excess stickiness of administrative and sales expenses related to the CEO has a negative relationship with shareholder value.
 Method: In the present study, the relationship between the excess adhesion of administrative and sales costs resulting from the decisions of CEOs and shareholder value was investigated. Based on agency theory and neoclassical theory, it was expected that CEOs would be significantly  effective in the level of cost stickiness due to their unique management style. Therefore, research hypotheses were formulated based on the identification of the fixed effects of the CEO on the stickiness of administrative and sales costs and the negative relationship between the stickiness of the surplus related to the CEO and shareholder value, and based on the company's 2016 information from the Tehran Stock Exchange during 2010- 2019; it was tested using multiple regression analysis.
 Results: The results indicate that CEOs play a significant role in the stickiness of general and sales costs, and management style has a positive relationship in the stickiness of costs with shareholder value.
 Conclusion: The results of this research are among the first pieces of evidence showing that managers' selection and decision-making style affect cost stickiness, which can be useful for the company and shareholders. In the current research, in accordance with previous research and our expectations, the effect of CEO selection and decision-making style on cost stickiness was confirmed. However, contrary to previous research, a positive relationship between CEO and company value was obtained. In other words, the manager's decisions regarding cost management are not based on personal motives but on increasing the company's value (based on Q. Tobin's criteria). Since the second research hypothesis is based on agency theory, it can be argued that incentives and other methods of reducing agency problems have reduced the conflict between owners and managers. This is an issue that can be further investigated in future research. However, building a model that controls all economic determinants is challenging. Also, the variable measurement indices may not be complete. Nevertheless, the research findings provide evidence of the effect of management style on cost stickiness. The present research and related research can help develop an experimental model to detect bad or good cost stickiness.

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References

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  • Receive Date: 08 October 2022
  • Revise Date: 17 July 2023
  • Accept Date: 17 July 2023

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